Policy

Commercial Real Estate NYC vs. Small Businesses

“This store is my life. Without it, I have nothing.” These words spoken by Hakim, the owner of Country House Diner in Brooklyn’s Clinton Hill, reveal the reality that small business owners’ enterprises are a reflection of themselves, their work, and their goals. Hakim, who moved to NYC from Palestine nearly 30 years ago, fears for the future of small business, in part because of rising cost of commercial real estate in NYC.

Those fears echo throughout the nearly 100 stories collected in a recent project by Storefront Survivors. Hunter College created the online storytelling portal to catalog the struggles and challenges of New York City small businesses. Like SaveNYC and New Yorkers for a Human-Scale City, Storefront Survivors looks at what happens when policy and government decisions—or a lack thereof—can force otherwise profitable businesses to go under.

Commercial real estate NYC crisis

courtesy of ANHD

One of the major challenges facing small business in metropolises across the country is the increasing cost of commercial rent. Some argue that it’s an inevitability of the free market, in which competition for a limited resource drives up cost. However, others, like the Association for Neighborhood and Housing Development (ANHD), say the reality on the ground in New York City tells a different story.

The ANHD points to their recent study which found that in 2015, “a total of 1,862 businesses in New York City were served with commercial possessions proceedings.” This is a process whereby “tenants are required to vacate the property and a lock is placed on the space, preventing them from accessing their businesses.” The steep rise in the cost of commercial real estate in NYC is a situation that’s led to what many call a crisis for the local small business community.

Minority-owned businesses in NYC

courtesy of ANHD

The ANHD study also revealed that this small business crisis is disproportionately affecting minority-owned businesses and their neighborhoods. Among other findings, the study showed that, in the neighborhoods with the highest concentration of limited English speaking households, an average of 33 percent of all businesses are small businesses. Similarly, “small businesses make up an average of 25 percent businesses in the five neighborhoods with the highest percentage of non-white residents.”

The Association’s map of small business density by NYC neighborhood shows that minority neighborhoods house the greatest number of small businesses.

Out-of-whack commercial rents mean empty storefronts

courtesy of Vacant New York

Many New Yorkers are understandably perplexed by the combination of thousands of vacant storefronts and rent increases continuing at astronomical rates. What people may not know is that, unfortunately, some developers choose to keep properties off the market while they wait for the possibility of a big chain store tenant with deep pockets. Some New Yorkers were so confused by this practice that Vacant New York did some data analysis to clarify what was happening. Here’s what they found:

Supply and demand isn’t working. Landlords with large portfolios of property, despite having significant (100+) vacancies, can’t drop prices significantly without having a ripple effect on the rest of their portfolio. They can, however, take the loss from the vacant properties and shelter other income.

The visualization of Vacant New York’s data offers a bleak vision of a Manhattan abandoned to blight as a result of unfettered commercial real estate pricing.

Many New York City small businesses look fearfully towards a future in which they may lose their business to a rent increase. Yet there seems to be little momentum in the City government to address this issue.

Solutions to commercial rent crisis in NYC

A number of organizations have examined the situation in order to recommend policy changes to protect NYC small businesses tenants. Some have pointed to implementing legislation like San Francisco’s recent Legacy Business program. According to SF Curbed, San Francisco defines a Legacy Business as, “Any locally owned commercial outfit that’s been open for at least 30 years (younger businesses can sometimes squeeze in under the bar, though), garners a nomination from the mayor or Board of Supervisors, and gets final approval from the Small Business Commission.” In fact, just this month, the first cadre of nine Legacy Businesses were confirmed. While folks celebrated this step toward preserving communities, many here in NYC feel it doesn’t go far enough.

The Small Business Jobs Survival Act (SBJSA) is a bill currently in the New York City Council, which would give commercial tenants the right to renew their lease when it expires, the right to request a ten-year lease, and the right to fair lease terms. The “fair lease terms” portion of the bill would means that if the landlord and tenant can’t agree on the lease terms, a neutral third-party arbitrator would review the lease and determine fairness. Despite being supported by a majority of the New York City Council, with 27 of the 51 Council Members signed on, the bill has stalled in the Committee on Small Business. Community advocate groups including Take Back NYC have repeatedly called for a public hearing to move the SBJSA up for a vote. Nonetheless, there is little political will in City government leadership to see the bill granted a vote.

Another suggestion has been to look to our neighbors across the pond in the United Kingdom, where there exist some basic rights for small business tenants under The Landlord and Tenant Act of 1954. This Act has some key differences from both the SBJSA and the Legacy Business program. City Limits, an urban planning think-tank, pointed out that “the British law allows landlords and tenants to agree on a contract in which the tenant signs away their right to lease renewal,” and there is “no required length of the lease.” Additionally, “when the court decides on a new rent,” the only factor it considers is the comparable market rents in the surrounding area, meaning “operating costs and mortgage costs would not be taken into account.”

Right now, the only solution that is actually on the table for New York City small businesses is the possibility of passing the SBJSA. Unsurprisingly, disagreement abounds between the many small businesses who stand to benefit from commercial tenant rights and the property owners who stand to make significant financial gains without regulation. Hopefully, the increasingly urgent fact that New York City’s small businesses are facing a crisis will move both sides towards finding a solution.